Capitation as Whipping Boy: Court Takes on Touchy Issue

John Marcille

As we were putting this issue of Managed Care to bed late last month, the U.S. Supreme Court issued an opinion with important implications for our readers. In upholding states' authority to impose third-party review of HMO coverage denials, the high court sought to resolve conflicting decisions by two appellate courts about the legality of such laws in Illinois and Texas.

HMOs, the court ruled 5–4, have all but assumed the role of insurer, thus putting them under the realm of state regulation. Health plans — which, intuitively, would seem to support any measure intended to stop disputes from growing into full-blown lawsuits — groused that the opinion makes it harder to operate in multiple states, whose disparate regulatory standards are a challenge.

Plans' hands are full with potential avenues for liability. Capitation is at the heart of suits filed in U.S. District Court on behalf of physicians and health plan members. Seven HMOs that capitate physicians are accused of conspiring to withhold necessary care, in violation of RICO, the Racketeer Influenced and Corrupt Organizations Act. The 11th Circuit Court of Appeals will decide whether the HMOs are open to racketeering claims.

The multiple dimensions of capitation's slump, reported in this month's cover story, seem to be a touchy subject for HMOs, many of which were loath to go on the record for this story. Among national health plans, Anthem and PacifiCare declined requests for interviews, and Cigna and Aetna ignored them altogether.

Capitation may be down, but it's not out. If you believe that cap is an incentive to provide too little care, then you must believe that fee-for-service is an incentive to provide too much of it. If plans are to keep coverage decisions reasonable and fair, they'll need tools that involve physicians and patients in the decision-making process. Capitation is one of those.

Career Opportunities

HAP, a subsidiary of Henry Ford Health System, is a nonprofit health plan providing coverage to individuals, companies and organizations. This executive develops strategies to meet membership and revenue targets through products, pricing, market segmentation and advertising.  Aligns business among Business Development, Commercial Sales, Medicare and Public Sector Programs and Product Development. Seeks to enhance and be responsible for business development and expansion through the development of an effective product portfolio, strong interpersonal relationships and service excellence.

Apply via email to or online at

Subscribe to Our Newsletters

Monthly table of contents

Be notified as each issue of Managed Care is available online.

Biweekly newsletter

Recent topics have included:

PTCommunity news

New drug approvals, clinical trials, drug management. Three times per week.


Managed Care
By Peter Wehrwein
Managed Care
By Howard Wolinsky